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8/30/08

In part four of the series, some of the ostensible advantages of Dorato Resources' Cordillera del Condor project were outlined. Today's part five takes a look some of the drawbacks of the project with a view to giving an idea of the difficulties the company may encounter in the short, medium and long term. This post concentrates on issues around the actual projects being moved forward by Dorato (DRI.v) and not the company structure.

So on with the show, and I've identified four basic problems that will need to be overcome by DRI.v if the project is ever to get off the ground. There may, of course, be other specific problems to add to this list and do not include any of the global issues that affect all mining companies at present. Click on any photo, map etc to enlarge if necessary.

1) Terrain and infrastructureTo say it's difficult working terrain is an understatement. Here are a few maps of the area that give you an idea of the lack of basic infrastructure. There are no roads at all on the Peruvian side of the border.

The nearest main road lies between at least 60km and up to 120km from the concession areas.

And as this map shows, rivers and their tributaries severely restrict possible travel routes.

Rivers such as the Cenepa are not navigable with heavy transport craft...

.... and are totally innavegable even in canoe for around 1/3rd of their length.

The Cenepa River, 1995

Therefore any plans to move equipment in and large production tonnage out by water would seem far-fetched. It goes without saying that power supply to the region is virtually non-existent, which would be a serious and expensive issue to overcome if mine construction were ever considered. This satellite photo of the central ground area taken during the Cenepa war of 1995, although not very clear, shows the homogenous nature of the tropical jungle

Note: To help with location, note Falso Paquisha marked on this satellite and compare to the first map in the post above.

2) Logistics and Exploration CostsBy looking at the budget for this year's exploration program at Dorato Resources, we can get an idea of just how expensive this project is likely to become. The phase one and phase two plans that combines exploration work, mapping geological discovery programs and a 14 to 24 hole drilling program have been budgeted at U$4.46m.

Transport to and from the area is a major problem and adds significant cost. At U$1.685m budget, just paying for the helicopter support adds 42% of the total cost of phases I and II (which includes for example salaries for project manager, geologists and support personnel, explorations, steam samplings, IP resistivity surveys, the drilling program, laboratory expenses, construction and running costs of a 20 person camp, and the thousand other things not mentioned here that make up a field project).

It therefore goes without saying that if the area is considered sufficiently prospective and the project moves forward towards the construction of a mine, costs for the mine will have to include a very expensive road. As already mentioned, power supply to the area will also be a major cost problem.

Even when on site, the terrain is not easy. This photo of the Tambo target (number 1 in maps featured in part 4 of the series).........shows artisan mining works in the side of the steep hill. This kind of terrain makes simple drilling preparation and execution tricky, let alone actual mining.

3) Environmental IssuesThere is no doubt that, if this project has initial success in the discovery of sufficient gold grades and orebody tonnage/area, that the project will come under intense environmental scrutiny. Not only is the area home to many rare species of flora and fauna, but the area also drains through the lower-lying jungle areas to the East and into the Amazon river. There are many consequences to this, but as just one thought amongst many the construction of any local tailings facility would be both expensive compared to peers and technically very challenging.

4) Land MinesYes, land mines. In 1995, the region was the scene for the so-called "Cenepa War" between Peru and Ecuador. The fighting was short-lived but hot, and many land mines were laid by both sides.

In April 2007, the gov't of Peru estimated there were over 30,000 land mines laid in 35 areas designated 'dangerous zones'. Two of the three main regions for these dangerous zones lie inside the DRI.v concession areas. As well as posing a direct threat to those exploring the area for prospective sites, the land mines will cause headaches galore if the moment comes to construct better communications roads between the site and the outside world.

The land mines issue also partially explains why using the Ecuador road system and infrastructure to service any potential mine is not feasible. The two countries may be at peace with each other now, but it is unlikely (to say the least) that Ecuador would start lending a helping hand to Peru in a micro-region so politically sensitive.

ConclusionThese are just four problems that Dorato Resources will have to overcome if it is ever to make a viable case for large-scale mining in the area. I've chosen these four because potential investors in DRI.v need to see the advantages and disadvantages of any project as soon as possible, and it is unlikely that the company itself would voluntarily bring these issues to the public eye.

It is, of course, perfectly possible that the company has good answers and clear solutions to all the problems mentioned. But the potential investor now has a better idea about what to ask the company before considering an investment.

So that wraps it up for an overview of problems and issues for the Cordillera del Condor project itself. In part 6 I'll start looking at the structure of the company, and we'll begin to see how the track records, backgrounds and people involved are important to the future of the stock promotion.

Disclosure: I would like to remind you that at no point will I make any sort of recommendation to buy or sell any DRI.v securities. I would also like to make it clear that to the best of my knowledge the promotion techniques used and to be used by Dorato are totally legal. Finally, I would like to make it clear that I am not passing any moral judgement on Dorato Resources, and will try to avoid any insinuation of judgement in future posts in this series. The aim is to educate readers about some of the ways promotion campaigns are used and the company structures behind them.

A young Peruvian survived being hit by a train for the second time after falling asleep on the rail tracks while drunk, informs the Peruvian press.

EFE: Eddie Vincent Reyes, a 28 year old homeless drug addict, was hit by a train that was transporting minerals in the outskirts of Lima when he fell asleep on the railway line after a drinking session with friends.

The victim was dragged various metres by the locomotive, but only suffered contusions in the head and thorax and a fractured leg.

This is the second time that Reyes has survived this type of accident, as two years ago he lost a part of one leg after falling asleep on the rails and being run over by a train.

I have to say I like Tyler Bridges' blog 'Inside South America' more and more, which is a first for a mainstream journalist corporate-style blog. Concise and snappy snapshots of the region. Here's the link to the main page, as the five most recent posts are all worth reading. A variety of subjects and countries.

Mexico, abortion, Supreme Court rulings. The Mex Files gives you the lowdown on this week's polemic decision in one of the world's biggest Catholic states. A great summary of the situation, and you even get to play 'spot the typo' in the title ;-).

8/29/08

Tonight we bring you a story from "The Other Peru". Extrajudicial killings and cover-ups, corrupt government officials, death by poisonings, police corruption, mob rule and drug trafficking. All the ingredients that would make for international headlines in any Latin American country not deemed "investor friendly" by the North.

This is the Peru that long-suffering Peruvians want stamped out, and this story of complicity between government officials, police and large amounts of drug money is one that is quietly repeated up and down the country. This particular sordid tale has only unraveled because one man went too far and was denounced by locals demanding justice in the face of official indifference, and they had to literally riot before anyone from the National gov't took notice.

Now dead, presumed murdered by poisoning. The local police force are strongly suspected of his death.

3) Marcelino Yupanqui Pacheco, aged 45, typist or topograph (depending on conflicting reports in local and national media), native of the nearby town of Huamachuco. Murdered by being shot to death and decapitated, his body dumped in a ravine.

5th June 2008: Marcelino Yupanqui Pacheco, a local of the region, is reported dead in a ravine. The police state he died in a motorcycle accident and fell into a deep ravine.

16th June: Yupanqui's body is recovered from the ravine where it fell. The body had been decapitated (head still not found) and its arms cut off. A bullet wound was found in the torso .The autopsy fiscal later stated "I do not have the slightest doubt that this was a murder."

6th June to 5th August: Time passes. The police seem to do nothing and get nowhere with the investigation. The local population get agitated.

6th August: Locals capture and hand in to the local police Santos Sabino Cerna, aged 19.

Santos Sabino Cerna is handed in by locals

Santos then calmly confesses to helping murder Yupanqui by taking him to the scene of the crime on motorcycle. He also states that Santos Ruíz Guerra, the Mayor of Sanagorán, was the person who killed Yupanqui by shooting him twice in the head and once in the back. Two other people (as yet uncaptured) were at the crime scene, and between them the Mayor gave them between S/30,000 (about U$11,000) and S/35,000. Santos's share was S/15,000.

The motive of the crime was apparently to silence Yupanqui about the Mayor's financial dealings, almost certainly cocaine-related. Yupanqui had often complained to his wife (now widow) that he was hated by the Mayor and entourage because he refused to join in with his criminal activity.

An order for the arrest of Mayor Ruíz Guerra is issued. The mayor takes refuge with some 300 loyal locals in Sanagorán. The police do not execute the arrest order.

26th August: A mob congregates in Huamachuco town plaza and demands the arrest of the mayor as well as the arrest of the second in command at the municipality building, who they accuse of also being guilty of the murder. They also demand the resignation of the local police force commander, César Silva Urbizagastegui, alleging he is part of the corrupt gang. A 24 hour deadline is announced.

27th August: The mayor arrives from next door Sanagorán and hands himself in to the police at Huamachuco. The mayor is accompanied by a large crowd of Sanagorán supporters who protest his innocence. Local Huamachuco dwellers arrive, and fighting breaks out between the two groups. The Huamachuco locals then sack the police station and try to capture Mayor Ruíz Guerra in order to linch him.

Mayor Ruíz Guerra escapes along with the seven police officers on duty. The police station is destroyed and three police vehicles set on fire as well as the contents of the police station. Nineteen prisoners escape from jail, including Sabino Cerna. National police arrive the next morning to restore calm.

29th August (yesterday): Santos Sabino Cerna, the confessed assassin hired by Mayor Ruíz Guerra is allowed home after being recaptured. He complains of having been beaten and threatened by police, who want him to retract his confession. He shows his father two needle marks on his arm and says the police injected him with something. Minutes later he begins to feel unwell. Four hours later he is dead, showing all symptoms of having been poisoned. The autopsy is currently underway.

The case against the Mayor relied solely on the confession of the now dead Sabino Cerna. The mayor is currently being held in the coastal city of Trujillo while investigations continue.

UPDATE SATURDAY 30th: Cover up, what cover up? The official autopsy has said that Santos Sabino Cerna did not die of poisoning, but of pulmonary edema. I'm no doctor, but here's the wikipedia page to give a general idea, and it does say that the causes are "either due to direct damage to the tissue or a result of inadequate functioning of the heart or circulatory system." So what's a 19 year old doing with a suddenly inadequate heart? I mean, would you be suspicious of this diagnosis?

At the funeral procession, the 1,000 people attending gave authorities 10 days to bring some justice to this case, and included the reiterated demand for the resignation of the local police chief as one of their demands. So far there haven't been any more violent episodes, but you can bet money on there being further trouble if the Peruvian authorities continue sweeping this scandal under the carpet. It's not just Denmark that stinks sometimes.

An e-mail friend just sent me this report in the IHT and added his question "What exactly does this mean?" Well here's the full report pasted, and underneath is my reply to him (as it's a quiet day, let's do this "discovered mailbox" thing again). The moral of this story is that finance-world people sometimes talk funny, but the logic is translatable.

It means the banks are storing dollars and by design putting pressure on the Bolivar.

If you have a dollar and you can exchange it on the parallel market at 3.8, but you're pretty sure you can get 4.2 for it next week...what do you do? Sell your dollar or buy another one? Yep, you buy another one, cos you want to double your profit from now to next week. And if you know your friends in other banks are thinking the same way, that "pretty sure" becomes "nailed on certainty".

So the bank can't meet its reserve requirement (i.e. the physical cash in the tills and the safes and whatnot) because all the VEFs are being tied up...they've been used to buy dollars.

Therefore what Rodriguez is saying to the banks here is, "Look, I know what your game is....either back off voluntarily now and stop whacking on the VEF, or I'm gonna get busy on your tushes."

Yep, it sure feels like the Friday before Labor Day today (and if you have to ask what that means you shouldn't do any trading today).

Net Servicos (NETC) at $11.60. Wowsers, I'm actually up a buck a share on the tiny position I took a few days ago, and this thing has paid back a bit of the previous losing trades. I like the fundamentals on NETC, and that won't change just because the Bovespa goes in and out of fashion up North.

KRY up 22% or so at $1.39 (I'm not polluting this site any further by mentioning the company by name). It's just slightly tempting to short here, but the standing advice is the same as always. AVOID THIS STOCK. Do not go long, do not go short. You cannot seriously think you can beat the crooks that run this paper.

Aurelian (ARU.to) at $6.00. Counter bid? Sorry, I just hear crickets. Over at the best place for info on ARU, the talk is of how John Embry called the Kinross move "brilliant" on BNN last night (I took a few minutes last night and read all the posts yesterday guys...thanks for the intelligent viewpoints). The fact is that Embry is 100% correct, and it should make you think of win-win dealing psychology.

When one side says a deal is "fair", or "good", then that's a win-win.

When one side says a deal is "brilliant", be clear that the other side has been taken to the cleaners.

That's you, Mr. Anderson. You know that old saying about sitting at a poker table, Patrick? If you can't work out who the patsy is, it's you. And you wonder why there's a revolt on..... jeesh...welcome to Bay St.

Copper back to $3.40/lb, zinc under $0.80 and the volatile lead down to 0.88 (and dropping, it seems). So be it. The reason given to the market is the usual bearish yada yada about China demand. The yada from Reuters includes...

"People were hopeful there might be a pick-up in Chinesedemand after the Olympics, although we are not really gettingthe feeling that is starting to come through as yet," said DanSmith, analyst at Standard Chartered.

....about king copper. To labour the point, this is why I like looking at the bigger picture, cos the fleabrained concepts that run the day-to-day market just stick in my craw.

I did notice Breakwater (BWR.to) rally very strongly yesterday...

.....but wasn't on for the ride personally...not this time. Can't win 'em all, but any further strength in the stock today in the face of this latest "China demand worry" will be telling. Missing a 20% + move doesn't hurt when you can still grab the thing under $0.40 and watch it go back towards its 52 week high ($3.41....yes, it really has dropped that hard).

I'm going to justify these photos on a LatAm blog by pointing out that Obama has overwhelming support in all local polls (for what that's worth). But really, these are here simply because they're mightily impressive images.

8/28/08

Santa Cruz's Municipal Gov't has been caught red handed trying to import army helmets and shields into Bolivia.

As detailed in this or in this report, customs officials stopped a truck laden with contraband from making its journey from La Paz (El Alto) to Santa Cruz. The paperwork the truck driver was holding said that the load was 674 motorcycle safety helmets and 364 polycarbon plates. In fact, when the load was inspected they found 674 full metal jacket type army helmets and 364 high impact resistant police shields.

In the words of the head of Bolivian customs, ".... this (is) contraband that threatens the security of the State; these materials are for war, they are war helmets, these materials cannot even be used under the argument of anti-riot equipment."

Also, the final delivery is clearly stated as "Municipal Government of Santa Cruz."

Was this part of Goldberg's plan, I wonder? There ain't nothin' tin foil about these hats, duderino.

Well, I marked your card on this last week, so if you didn't do anything about it you've only got yourself to blame. The Venezuelan Bolivar Fuerte (VEF) has sunk around 20% in the space of just two weeks (click on any chart to enlarge).........

VEF parallel currency evolution, May 2006 to date

Here's the currency year to date. We can see theexchange rate came down sharply, but hasrecently started moving back up

The one month chart, with the recent rise clear to see

......with the slide coming right after the interview Moris Beracha gave Venezuelan newspaper 'El Nacional' on August 18th. Your dutiful Otto even translated the interview into English for you (link right here) last week, so readers here are on the cutting edge of intel, that's for sure.

The interview was one of the most interesting I've read for a while, and is almost certainly the catalyst for the 20% slide in the VEF since then. Really...I'm not joking. That's cos Beracha is the number one top dog king of the hill main man in Venniefinances these days, and his word is law. There's plenty to take away from the Nacional report, but maybe the main consequence was from this Beracha line

"...I don't think there will be another debt emission this year, unless it's in Bolivares (VEF)...."

because as soon as the VZ money minions read that single line they knew there was only hope and wishes holding the VEF down at the 3.2 to 3.4 range. The currency immediately (like that same day) moved to 3.5, and here we are with the VEF at 4.05 ask this afternoon. Yes, Moris really is that connected and that powerful.

Beracha was the catalyst for sure, but as this next chart shows, there are fundamental reasons behind this currency weakness, too.Venezuelan Central Bank (BCV) stats show that M2 money supply (without getting boring on you, M2 is basically the money in circulation in any given economy) has ratcheted up sharply in the last few weeks, as the BCV has not been neutralizing the extra VEF by buying them back for dollars (as was the Beracha/Isea plan of previous months). Basically, the Gov't has been at the printing presses, and that means the currency comes under pressure.

The current U$75.18Bn (converted into dollars at the official 2.15/1 rate for convenience purposes only) in VEFs circulating in the Venezuelan economy marks a 5.7% increase in M2 in just 10 weeks. Now that may not seem like a lot to you, but currency-watchers know that's a seriously big move for M2 numbers in a relatively short space of time.

But the big question is, "Where is the VEF going in the next few days/weeks?" My best guess answer to that is "I think we'll see VEF4.5/U$1, then it will come back down a bit", and here's why:

With Venezuela's International Currency Reserves currently standing at U$37.49Bn, this means that we can do a very basic calculation and say there's an equilibrium point between the VEFs in circulation and the dollars kept in reserve that points to VEF4.31 as an optimum parallel exchange rate at present (you do this by dividing M2 by reserves, and then taking the resulting inflator ratio and multiplying the VEF's official exchange rate of 2.15 to the dollar...it goes like this: 75.18 / 37.49 = 2.005 X 2.15 = 4.31).

This calculation doesn't take into account any psychological influences of a population that's watching the VEF slide, of course. Therefore we may well see the VEF go lower before rebounding, and that's why I'm calling 4.5 to 1 right now. But as always, DYODD on this, dude.

The 2007-2008 version of the CEPAL "Estudio económico de América Latina y el Caribe" was published this week. This report is one of the most complete annual economics studies of the region and over the years has become required reading (for wonky guys like me, that is).

You can get your own copy, free gratis and for nothing, by clicking on this link right here(I'm good to you, am I not?). I'm quite sure this 200 page PDF in dense, financial Spanish is bound to brighten anyone's weekend.

It really is an excellent source of reference, but the word "stupid" crept into the title line because these CEPAL dudes insist on trying to predict (read 'guess') how the regional economies will pan out in the next couple of years. I'm going to use the example of Venezuela, and shock horror you'll be surprised to find out that CEPAL consistently underestimates its economic growth rates. You need to check previous publications for the figures and I've only got them on file in the PC, but I've managed to find some website links that prove the point. Here are the CEPAL prediction numbers in the chart below from 2004, from 2005, from 2006 and 2007.

We see that CEPAL has at least been consistent, as apart from 2004 when they totally miscalculated how quickly Venezuela would rebound from the PdVSA strike and the recall referendum shenanigans, they've missed by about 2% each year, though always to the downside. By simple extrapolation therefore, we can get closer to the suited guys by adding 2% on their FY08 and FY09 guesses. Hey, this prediction game is fun! Let's play more often!Moral of this story: Dismal scientists' reports are good places to find out about what happened in LatAm, not what will happen. Feel free to pass this post on to the next person who tells you Venezuela will only grow 4% in FY09. Fact is, the only thing that affects GDP growth in Venezuela to any great extent is the price of crude oil, so you get a better idea of its growth prospects from the CBOT than you do from economists.

UPDATE: I immediately got a mail about this post from a friend who says "Big deal, they got Vennie wrong". Fact is that they suck regionwide, and here's another chart I've just thrown together from the CEPAL yearly publications showing their predictions for pan-regional growth and how the reality has bitten.

In it, GRZ said that RML.v offered an all-paper two-shares-of-RML-for-one-GRZ, so with RML currently at $0.80, this puts the takover number at $1.60 (if you use the Kinross/Aurelian school of logic, anyway). Not surprisingly, GRZ rejected the offer immediately, as it is as cheeky as it is lowball. But when I saw the PR, I had one of those "RUH ROH" moments, as it looks like there's an offer you can't refuse in the pipeline. In ballpark terms, it goes like this;

RML makes a dirtball lowball offer (done)

GRZ rejects the offer (done)

RML says, "Well, I suppose we could go to three papers for one, but that's about it."

GRZ then gets a visit from Venezuela's mining ministry (MIBAM) who explain that the Rusoro offer is one they can't refuse.

GRZ is prised out of Brisas in much the same way Hecla was recently ousted from its Venezuelan operations, which were then coincidentally awarded to Rusoro.

In yesterday's PR, it does seem as though GRZ is willing to negotiate on this. CEO Belanger pointed out that GRZ has plenty of tangible and non-tangible assets, and although RML would be interested in the CAT diggers etc, what the Russians really want is the 10m oz Au and 1Bn lb copper sitting under Brisas (and right next door to Las Cristinas..ahem ahem). So I can easily see an endgame here, where GRZ spins out all assets and the large wodge of cash it has at bank, then hands over Brisas and hightails it out of the Imataca Forest.

But whatever happens, it's pretty clear that RML is the vehicle being used by Venezuela to get its hands on the yummy gold deposits in the area. As soon as KRY goes bankrupt, they're likely to get Las Cristinas, too (and don't expect an offer for Crystallex, ok? Serious companies tend to pay money for other serious companies, not empty shells pretending to be valuable).

Amerigo Resources (ARG.to) has money, and it also has a track record of taking minority positions in junior copper miners in the region (check out the large chunk of DNT.to it owns).

But the big link is Dr. Klaus Zeitler, who happens to be the President of LA.v and also the Chairman of the very successful ARG.to.

The sum total of these three fact is the announcement made today by ARG.to and the whole deal makes a lot of sense. ARG.to now owns around 14% of the full dilution in LA.v. As for Klaus Zeitler, have a read of his resumé as posted on the LA.v website; for the record, this is a good example of the kind of background I like to see when I'm looking at a junior:

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

Dr. Zeitler received his professional education at Karlsruhe University from 1959 to 1966 and obtained a PHD in economic planning. Dr. Zeitler is a member of the Canadian Institute of Mining and Metallurgy and the Prospectors and Developers Association. Dr. Zeitler financed, built and managed base metal and gold mines worldwide (Europe, Africa, North America, South America, Pacific) with a total investment value of $4 billion.

Dr. Zeitler was a managing director of Metallgeschaft AG, a German metals conglomerate and in 1986 founded and was a director and CEO of Metall Mining, later Inmet, a Toronto Stock Exchange listed company with assets of over $1 billion and base metal and gold mines in different parts of the world. After having been a director of Teck and Cominco for many years, Dr. Zeitler joined Teck in 1997 as Senior Vice President and had responsibilities for the exploration and development of mines in Peru, Mexico and the USA. Since his retirement in 2002 from Teck Cominco and in addition to being President and a director of Amerigo, Dr. Zeitler has been actively involved as a director in various junior base and precious metal companies.

Economy rebounds at better-than-expected pace in the spring, mostly spurred by exports

WASHINGTON (AP) -- The economy shifted to a higher gear in the spring, growing at its fastest pace in nearly a year as foreign buyers snapped up U.S. exports and tax rebates spurred shoppers at home.The Commerce Department reported Thursday that gross domestic product, or GDP, increased at a 3.3 percent annual rate in the April-June quarter. The revised reading was much better than the government's initial estimate of a 1.9 percent pace and exceeded economists' expectations for .......yada yada etc etc

And finally there is this. Aren’t elections supposed to mean something? Three times in a row now, by escalating majorities, Evo and MAS have won national elections – the Presidential vote in 2005, the Assembly vote in 2006, and again this month.

Yes, Evo and MAS should negotiate with their adversaries. Yes, MAS should not seek to build a monolithic state in which it assumes too much power. Yes, national operations should be decentralized so that people don't have to take a bus to La Paz to process a simple public form. But look folks, the vast majority of Bolivians have spoken, and spoken, and spoken, in favor of a turn of direction and it is time to let the government they selected govern.

4) Ask them how much the contained silver is worth today(making sure you're not talking about its collector's value; my example has been valued at around U$300, but a truly perfect mint example of the "freedom dollar" can go into the thousands).

5) Congratulate the first one that says "over ten dollars" (in fact, using today's $13.76 London silver fix and doing the necessary calculations, it works out at U$10.63).

6) Ask them how much it seems the silver in that dollar has risen in dollar value in the 85 years since it was minted.

7) Congratulate the first one that says "over 90%" (90.6% if my quick math is correct, but there are a couple of variables), and then go on to say that apparently, and according to the pretty empirical evidence shown by that silver coin, it sure looks like the dollar has lost 90% of its value in the last 85 years.

8) Ask them to look around. Check the room, the street where they're standing, the city and the people. Ask them whether there has been a general improvement in the standard of living in the last 85 years, considering the economy, healthcare, education and any other measurement by which we tend to gauge that thing called "progress".

9) Ask them why they think the financial system will collapse if the hated fiat dollar loses another 90% of its worth in the next 85 years.

10) After a few minutes, I will guarantee that you need to tell one of them, "No, it's not a trick question."

The normally reliable Reuters brings a report from Cuba that the global finance crunch and Agflation is even affecting the most communist nation in the region.

Darnit, I'm sure President Twobreakfasts assured us that inflation wasn't a problem in Peru and that it was all a media-run hoax.

Inflation is also a headache at that other "investment grade" country, Chile. The Central Bank head says there are more interest rate hikes on the way. With copper having found a bottom, it's good time to bet on the Chilean Peso, methinks.

The Brazil pump is back on! Citigroup today joins yesterday's UBS call to buy Brazil consumer stocks, and DeutscheBank pipe up on a "buy" rating for Petrobras. Birds of a feather.........

Evo in Bolivia wonders why the half moon states are kicking up such a fuss about getting "their fair share" (BS) of the hydrocarbon tax when they never spend it on their populations anyway? The Beni region has spent just 3% of its already collected tax harvest so far this year.

A big move, and it has rubbed off only slightly on zinc. Zn has been rattling around the 80c/83c Lb range for the last couple of days, with much lighter volume.

As for King Copper, it's just about holding the $3.50+ line today. I read a good technical analysis report yesterday that called the next resistance level at $3.55/$3.56 Lb, and I have to say it made a lot of sense (that for an Otto who normally scoffs at the mumbojumbo chartists).

I'm still waiting for lift-off on zinc, and feel Zn exposed stocks are an excellent buy for those prepared to hang in for the longer-term and ride the beta without getting seasick. However, the watershed Labor Day is now just around the corner, and there's plenty to suggest that the broader markets will have to dive again before any well-founded recovery gets underway. Even though I wish it weren't so, the big indices will affect the smaller trifles such as gold, copper, base metals etc in the short term action, so right now I'm still playing it chicken and basically waiting on the sidelines.

With just a few days for the original Kinross (KGC) offer to buy Aurelian (ARU.to) left to run, the market seems to be indicating the following:

There is no counterbid on the way

KGC will have to sweeten the deal in order to bag the prize

The first statement is clear if we look at the comparative performance chart.

Here we see ARU, KGC and the XAU gold index over the last month, and there's not much doubt that spot gold is the direct influence on KGC, which is in turn the joined-at-the-hip influence on ARU. You'll note from this next chart that tracks ARU's performance against the XAU gold shares index that although the XAU operates as the mean to ARU, its junior status previously meant it did its own thing to a great extent.

Also worth reflecting on looking at this chart that at the current sale price, holders of this most excellent of junior golds have not been given any premium for risk by Kinross.

There haven't been any other influences on the ARU pps, which shows the lack of a counterbid......the market tends to get wind of these things when there's something in the pipeline. I'm sorry to have been right on this one; at the beginning of the process there was much talk about not 'if' but 'when' the second bid would come that was based on people's hopes rather than looking at how this awful deal for ARU.to holders was designed. I did say from the getgo "possible, not probable", because there's always a chance on these things. I also remember the pro-analysts like Wendell Zerb of Canaccord saying it was a 50/50 chance of a buyout, a classic cop-out-sit-on-the-fence call if ever there was one (if the bid comes you're right...if it doesn't you're right....and they pay these people for advice like this??...though a bit unfair to pick on Zerb, as there were many similar stories).

As for the second statement about a sweetener on the way, the share price action makes that clear. With KGC currently at $16.82, the pro-rata share deal prices Aurelian at $5.33. Aurelian currently trading at $6.08 shows an arbitrage of 14% (unless you seriously believe that 1/7th warrant with a strike of $32 and a 5 year time limit is actually worth something...it's not). This suggests that the all-important block holders of Aurelian shares will be holding out for a bit more; perhaps a cash component (KGC could easily afford to throw in 50c a share or so).

Meanwhile, on the grander Ecuador front, as reported yesterday President Studmuffin looks on course to get the absolute majority he needs to ratify the new constitution. With 53% and rising of voter intention now in the "yes" column, and the fact that polls consistently underestimate Correa's final performance in any vote (due mainly to demographics and lazy pollsters who can't be bothered to ask anyone outside the cities) it all looks good for the Muffin Man.

All sources except one, that is. The CEO of Aurelian, Patrick Anderson has changed his tune on the whole subject. From being "confident" about the future of mining, he's suddenly crapped out and now says that it's all risky and stuff. This is amazing timing, as his road to Damascus moment came the exact same time as the Kinross offer. It also comes at a time when he has just got married. Feeling henpecked already, Patrick?

Very strange USA-y things have been going on in Santa Cruz, Bolivia this week. First up, the US ambassador to Bolivia, Philip Goldberg....

Goldberg (no face paint)

.... went on a visit to the region ostensibly to do some USAID business and stuff. In the words of Goldberg, "......I went to Santa Cruz for various reasons; to deliver aid packages, I was at the inauguration of the special Olympics with the Prefect (Ruben Costas), and I also showed via tele-info the aid in this sector and the aid given in computing. I also took advantage of this visit to meet, in public, with the prefect Costas, only because this is part of my diplomatic duties."

Which would be nice if it were true, of course, but Goldberg has been caught in a big fat lie. Here's an image of the "public meeting" Goldberg had with Costas....

.....and it's only because a cameraman at a local TV station was smart enough to get a shot of them together as they entered and left the Prefecture building....

..... that Goldberg actually admitted he met Costas at all. And that thing about "public meeting" is total bull, as according to all sources they had a one-on-one private, closed door meeting that went on for an hour and a half and nobody but nobody was even let into the corridor that leads to the door they were behind. Are the Special Olympics such an interesting subject of conversation?

But just when you think it couldn't get any weirder and cloak'n'daggerier, it does. In the wee small hours of that same Monday/Tuesday, at 3:30am to be precise, a drunken man was arrested for causing a disturbance at a Santa Cruz nightclub. He barged his way in to the late night establishment (that's Otto's nice way of saying 'whorehouse', ok?) known as 'Curris Internacional' and started threatening both public and staff. When the police were called in and arrested him they found that;

His name is Gregory Gordon Michel

He is a US citizen

He is a member of the US military

He was carrying a loaded .45mm handgun with three spare clips

He was also carrying a folding police officer's nightstick

He was taken to the local police station when just 30 minutes later a posse of his fellow citizens arrived, claimed Gregory Michel was protected by Diplomatic Immunity and spirited him away. Here's the Bolivian media report on all this if you don't believe me (and I wouldn't blame you, frankly), and here's a photo of Gregory Michel taken last night looking 'tired and emotional'.

I did wonder if the Bolivian media had mis-spelled the name, but that's how it was spelled out at an official press conference, so I doubt they got it wrong. Also, the name does fit a LTC Gregory (Greg) Michel attached to the Mississippi National Guard who came back from a tour of duty in Iraq in 2007. He was pretty clearly in the firing line in Iraq, too, as eleven of his fellow soldiers were killed out there (RIP). If you want to e-mail him here's the address:

But amazingly enough the high-ranking Michel hasn't replied to my mail yet (he was promoted from major when he got back from Iraq). I hope you get a better result.

So all in all, strange that all this US activity around Santa Cruz has come to light. What with long unscheduled meetings between USA mouthpieces and Evo-hating local chiefs, and drunken, battle-hardened military types waving guns around and getting diplo immunity, it's enough to make you think they were planning something over there..........

UPDATE Wednesday morning: Ace bloggers Bina at Restless and Duderino at Abiding have got their own angle on the story. Go check 'em out. Gotta love Bina's Tweety Pie, and I agree with El Dude when he says there's plenty of food for a real journo to get their teeth into here.

8/26/08

Let all bear in mind that a society is judged not so much by the standards attained by its more affluent and privileged members as by the quality of life which it is able to assure for its weakest members.His Excellency Javier Perez de CuellarPeruvian statesman5th Secretary General of the United Nations

According to this official Peru Ministry of Health press release today, a total of 52 children under the age of five have died due to the combination of cold weather and pneumonia in the Puno region of Peru this year. Of those 52 children now dead, 33 were from the city of Juliaca.

The regional director of health, Percy Zela Campos said that the death of the infants doesn't happen due to simple health questions. "The children who die are from a very poor socioeconomic situation, and this is a big influence."

Here's another one from Zela Campos, and you'll note I'm linking the original quotes here; "..The Ministry of Health supports us with medicines.......the problem is that our stocks run out at this time of year (the Andean winter)."

And then there's this report that has President Alan García asking for "....the solidarity of his compatriots to offer help to the residents of the regions in the South of the country." The only problem with this is that this quote is from winter 2007 when another 50 children died from exactly the same thing.

Is it just me, or do you think there's something totally fucked up with this picture, too?

The weekly survey of voter intentions for Ecuador's constitutional referendum polled by SP Opinión & Estudios (a reliable firm, as it is one of the two polling firms given the official 28th Sept exit poll job by the Ecuador judiciary, the other being Cedatos) has just been published and the "Yes" vote that is pro-Studmuffin has continued to climb.

(click to enlarge)

Today's poll suggests that the "Yes" camp now stands at 53% and has a bit of a comfort gap in its favour (taking in account margin of error baked into the poll). I remind you that all spoiled ballots or so-called "votes in white" (ie unmarked ballot papers) will count in the "no" column. All this really means is that the "Yes" votes must gain an absolute majority of 50% +1 vote to win through on September 28th.

I was sent this link today by A.N Other with the message "what do you think?". Well, the answer is that I think it's just another waste of bandwidth talking about a trade that somebody uses as evidence for their 'it's not fair' pet theory. Part of the report had this chart...

...which supposedly shows how the so-called "commitment of traders" in the silver market (aka "COT silver") and how there was a recent spike in shorting the metal that comes from two major banks, and how that short position coincided with silver's drop from $18 or so to $13 or so.

Yes, it does coincide, but the same COT silver chart, when looked at from a longer time span, shows that there isn't really much you can read into a short-term position. I've scribbled on this chart underneath.......

...that shows COT silver in relation to the price of silver since 2005. We can see that:

60% short position in COT is not that unusual

In 2005, short interest dropped hard, but it didn't affect the price of silver in the slightest

For a long time through 2006, 2007 and 2008, short interest moved in conjunction with the price of silver. That means that when there were more shorts on board, the price of silver ignored the commercial traders and just moved on up (and vice versa).

You can't have your cake and eat it, I'm afraid. The worst chart-watchers in the world, and the ones that give the discipline its bad name (which is largely deserved, by the way, though there are some shining exceptions) are the ones that decide what they want to read into a chart before looking at it, and use the chart to confirm their own prejudices.

This is not some massive plot, it's people speculating, winning and losing. It's normal market stuff. One thing to note is when the "big players" bet on something to go up and it does, people rush to say "oh how clever, oh how wise". But if they bet on something to go down and it does, they're called manipulators, frauds, inside trader and every name under the sun. This is especially true in the gold and silver markets, which are populated by tinfoil hat permabull gold and silver bugs that just can't understand why gold isn't already at five zillion dollars an ounce. These people WANT the US economy to collapse around them just so they can say "I told you so" while civilization collapses around us. They are idiots.

I own gold and silver bullion, but I don't delude myself. It's there to anchor my portfolio solidly, not to be the cutting edge of my alpha gains. Capital preservation is still the order of the day. That's it. That's all. Thank you for your attention.

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